The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the monetary value of exports and imports in an economy over a certain period of time. In Economics, an export is any good or Commodity, Transported from one country to another country in a Legitimate fashion International trade is exchange of Capital, Goods, and Services across International borders or Territories. A positive balance of trade is known as a trade surplus and consists of exporting more than is imported; a negative balance of trade is known as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance; especially in the United Kingdom the terms visible and invisible balance are used. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located The visible balance is that part of the Balance of trade figures that refers to International trade in physical goods but not trade in services it thus contrasts The invisible balance or balance of trade on services is that part of the Balance of trade that refers to services and other products that do not result in the
The balance of trade forms part of the current account, which also includes other transactions such as income from the international investment position as well as international aid. In Economics, the current account is one of the two primary components of the Balance of payments, the other being the Capital account. A country's international investment position (IIP is a financial statement setting out the value and composition of that country's external financial assets and liabilities If the current account is in surplus, the country's net international asset position increases correspondingly. In Economics, the current account is one of the two primary components of the Balance of payments, the other being the Capital account. Equally, a deficit decreases the net international asset position.
The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stocks, nor does it factor the concept of importing goods to produce for the domestic market).
Measuring the balance of payments can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by a few percent; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. Credit is the provision of resources (such as granting a Loan) by one party to another party where that second party does not reimburse the first party immediately thereby generating Debit and credit are formal Bookkeeping and Accounting terms They are the most fundamental concepts in accounting representing the two records that one The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. However, especially for developed countries, accuracy is likely to be good.
Factors that can affect the balance of trade figures include:
The balance of trade is likely to differ across the business cycle. In export led growth (such as oil and early industrial goods), the balance of trade will improve during an economic expansion. However, with domestic demand led growth (as in the United States and Australia) the trade balance will worsen at the same stage in the business cycle.
Strong GDP growth economies such as the United States, the United Kingdom, Australia and Hong Kong run consistent trade deficits, as well as poorer countries also experiencing a lot of investment. The United States of America —commonly referred to as the The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located For a topic outline on this subject see List of basic Australia topics. Hong Kong ( officially the Hong Kong Special Administrative Region, is a territory located on China 's south coast on the Pearl River Delta, and borders
Developed nations such as Canada, Japan, and Germany typically run trade surpluses. Country to "Dominion of Canada" or "Canadian Federation" or anything else please read the Talk Page For a topic outline on this subject see List of basic Japan topics. Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. China also has a trade surplus. A higher savings rate generally corresponds with a trade surplus. Correspondingly, the United States with its negative savings rate consistently has high trade deficits.
Modern economists are split on the economic impact of the trade deficit with some viewing it as a loss in a fixed volume of trade while others claim it is a sign of economic strength.
Some economists believe that GDP and employment can be dragged down by an over-large deficit. Those who ignore the effects of trade deficits may be confusing the David Ricardo's principle of comparative advantage with Adam Smith's principle of absolute advantage, specifically ignoring that latter. In international trade the principle of comparative advantage refers to the fact that although one country may have an absolute disadvantage with another value can be created for both "The principle of comparative advantage", generally attributed to David Ricardo in his 1817 Principles of Political Economy and Taxation extends The economist Paul Craig Roberts notes that the comparative advantage principles developed by David Ricardo do not hold where the factors of production are internationally mobile. Paul Craig Roberts (born April 3, 1939, in Atlanta Georgia) is an Economist and a nationally syndicated columnist for Creators Syndicate In international trade the principle of comparative advantage refers to the fact that although one country may have an absolute disadvantage with another value can be created for both David Ricardo (18 April 1772 &ndash 11 September 1823 was an English political economist, often credited with systematizing economics and was one of the most influential   Free trade concepts presume free floating currencies; however, in the real world, currencies such as China's are not free floating, while others may be manipulated by governments.
Since the stagflation of the 1970s, the U. Stagflation is an economic situation in which Inflation and Economic stagnation occur simultaneously and remain unchecked for a period of time S. economy has been characterized by slower growth. In 1985, the U. S. began its growing trade deficit with China. In 2006, the primary economic concerns have centered around: high national debt ($9 trillion), high corporate debt ($9 trillion), high mortgage debt ($9 trillion), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high external debt (amount owed to foreign lenders) and a serious deterioration in the United States net international investment position (NIIP) (-24% of GDP), high trade deficits, and a rise in illegal immigration. Government debt (also known as public debt or national debt) is Money (or credit) owed by any level of government either Central government External debt (or foreign debt) is that part of the total debt in a country that is owed to Creditors outside the country A country's international investment position (IIP is a financial statement setting out the value and composition of that country's external financial assets and liabilities The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the monetary value of Exports and imports in an Illegal immigration refers to Immigration across National Borders in a way that violates the Immigration laws of the destination Country These issues have raised concerns among economists and unfunded liabilities were mentioned as a serious problem facing the United States in the President's 2006 State of the Union address. An economist is an expert in the Social science of Economics. The 2006 State of the Union Address was delivered by United States President George W 
Those who defend deficits revert to explanations of comparative advantage. Buyers in the receiving country send the money back. A firm in America sends dollars for Brazilian sugarcane, and the Brazilian receivers use the money to buy stock in an American company. This may lead to profits leaving the U. S however as Americans may forfeit control. Although this is a form of capital account reinvestment, it may not be a liability on anyone in America.
Such payments to foreigners have intergenerational effects: by shifting the consumption schedule over time, some generations may gain and others lose . However, a trade deficit may incur consumption in the future if it is financed by profitable domestic investment, in excess of that paid on the net foreign debts. Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving Similarly, an excess on the current account shifts consumption to future generations, unless it raises the value of the currency, detering foreign investment. In Economics, the current account is one of the two primary components of the Balance of payments, the other being the Capital account.
However, trade inequalities are not natural given differences in productivity and consumption preferences. Trade deficits have often been associated with international competitiveness. Trade surpluses have been associated with policies that skew a country's activity towards externalities, resulting in lower standards. An example of an economy which has had a positive balance of payments was Japan in the 1990s.
Milton Friedman argued that trade deficits are not important, as he thought high exports would raise the value of the currency, reducing aforementioned exports, and visa versa for imports, thus naturally removing trade deficits not due to investment. This opinion is shared by David Friedman, who has said that they are 'fossil economics', based on ideas obsolete since David Ricardo. David Friedman may refer to Dafydd ab Hugh, born David Friedman science fiction/fantasy writer political weblogger David Friedman (actor David Ricardo (18 April 1772 &ndash 11 September 1823 was an English political economist, often credited with systematizing economics and was one of the most influential 
Milton Friedman, the Nobel Prize-winning economist and father of Monetarism, argued that many of the fears of trade deficits are unfair criticisms in an attempt to push macroeconomic policies favorable to exporting industries. Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. The Nobel Prize (Nobelpriset (Nobelprisen is a Swedish prize established in the 1895 will of Swedish chemist Alfred Nobel; it was first awarded in Peace, Literature Monetarism is a school of economic thought concerning the determination of national income and monetary Economics. He stated his belief that these deficits are not harmful to the country as the currency always comes back to the country of origin in some form or another (country A sells to country B, country B sells to country C who buys from country A, but the trade deficit only includes A and B). In fact, in his view, the "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation.
However, Friedman's argument may have been a short term argument that has not proven valid in the long run. It is equivalent to saying that it doesn't matter if you get indebted, because eventually you will have to pay the money back. The obvious counterargument is that once a significant debt has been accumulated, paying it back may be painful. Friedman's supporters retort that when the money returns, the demand for foreign currency will make the exchange rate better for trade deficit country.
Those who assert Friedman's view as if it were a long run view may be ignoring the intergenerational or long run consequences of deficits, low savings, and borrowing to fund consumption. If country A has a trade deficit because of large imports of consumer goods, other countries accumulate cash from country A. That money can be used to purchase existing investment assets and government bonds within country A. As a result, the return from those assets will accrue not to citizens of country A but to foreigners. The consumption standard of future generations in country A may therefore potentially decline as a result of the deficit. In particular, Americans are increasingly paying taxes to finance the interest on federal bonds held by foreigners. However, a criticism of this argument notes that all transactions are win-win. A win-win game is a Game which is designed in a way that all participants can profit from it in one way or the other In the case of foreign investment in American assets, it helps fuel American economic growth and keeps US interest rates low. This argument is more appealing in the case of foreign direct investment, and less obvious when foreigners simply purchase the existing stock of assets.
Friedman also believed that deficits would be corrected by free markets as floating currency rates rise or fall with time to encourage or discourage imports in favor of the exports, reversing again in favor of imports as the currency gains strength. A potential difficulty however is that currency markets in the real world are far from completely free, with government and central banks being major players, and this is unlikely to change within the foreseeable future. Nevertheless, recent developments have shown that the global economy is undergoing a fundamental shift. For many years the U. S. has borrowed and bought while in general, the rest of the world has lent and sold. However, as Friedman predicted, this paradigm appears to be changing.
As of October 2007, the U. S. dollar has grown weaker against the euro, British pound, and many other currencies. For instance, the euro hit $1. 42 in October 2007, the strongest it has been since its birth in 1999. Against this backdrop, American exporters are finding quite favorable overseas markets for their products and U. S. consumers are responding to their general housing slowdown by slowing their spending. Furthermore, China, the Middle East, central Europe and Africa are absorbing more of the world's imports which in the end may result in a world economy that is more evenly balanced. All of this could well add up to a major readjustment of the U. S. trade deficit, which as a percentage of GDP, began in 1991. 
Friedman and other economists have also pointed out that a large trade deficit (importation of goods) signals that the country's currency is strong and desirable. To Friedman, a trade deficit simply meant that consumers had opportunity to purchase and enjoy more goods at lower prices; conversely, a trade surplus implied that a country was exporting goods its own citizens did not get to consume or enjoy, while paying high prices for the goods they actually received.
Perhaps most significantly, Friedman contended strongly that the current structure of the balance of payments is misleading. In an interview with Charlie Rose, he stated that "on the books" the US is a net borrower of funds, using those funds to pay for goods and services. He pointed to the income receipts and payments showing that the US pays almost the same amount as it receives: thus, U. S. citizens are paying lower prices than foreigners for capital assets to exchange roughly the same amount of income. The reasons why the U. S. (and UK) appear to earn a higher rate of return on their foreign assets than they pay on their foreign liabilities are not clearly understood. An important contributing factor is that the U. S. has investment primarily in stocks abroad, while foreigners have invested heavily in debt instruments, such as U. S. government bonds .  Other reports contend that U. S. net foreign income has deteriorated, and appears set to stay in deficit in the future .
Friedman presented his analysis of the balance of trade in Free to Choose, widely considered his most significant popular work. Free to Choose is both a book (ISBN 978-0-15-633460-0 and a ten-part Television series, advocating US Free market policy
Monetary balance of trade is different from physical balance of trade (which is expressed in amount of raw materials). Developed countries usually import a lot of primary raw materials from developing countries at low prices. Often, these materials are then converted into finished products, and a significant amount of value is added. Although for instance the EU (as well as many other developed countries) has a balanced monetary balance of trade, its physical trade balance (especially with developing countries) is negative, meaning that in terms of materials a lot more is imported than exported.
The United States has posted a trade deficit since the 1970s, and it has been rapidly increasing since 1997  (see chart below). The US trade deficit hit a record high of 817. 3 billion dollars in 2006, up from 767. 5 billion dollars in 2005. 
It is worth noting on the graph that the deficit slackened during recessions and grew during periods of expansion. Also of note, many economists calculate trade deficits and/or current account deficits as a percentage of GDP. The U. S. last had a trade surplus in 1991, a recession year. Every year there has been a major reduction in economic growth, it is followed by a reduction in the US trade deficit. 
Warren Buffett has proposed a tool called Import Certificates as a solution to the United States' problem. Warren Buffett (born August 30 1930 is an American Investor, Businessman, and Philanthropist. Import Certificates are an idea for governmental economic intervention to fix a country's Trade deficit.
"From 1750-1914 there may not have been a single year in which Britain ran a trade surplus--but that's when Britain ruled the world. "